Contract Provisions That Will Make You Proud

CONTRACT PROVISIONS THAT WILL MAKE YOU PROUD

By: Robert S. Tanner, Esq.

Your Construction Law FirmTM

In General Tool Industries, Inc. v. Premier Machinery, Inc., 790 So. 2d 449 (Fla. 3d DCA 2001), Buyer engaged Seller to manufacture specialized equipment that could produce rocker arms. Seller made written proposals to manufacture a milling machine and a lathe for Buyer's requirements. Seller's proposal included the following provision:

11. Seller shall not be liable for any incidental or consequential damages for lost profits, lost sales . . . [R]ather buyer and seller agree that the sole and exclusive remedy for breach of any warranty concerning the product shall be the repair or replacement of defective parts or, at seller's option, refund of the purchase price.

Buyer submitted purchase orders to Seller. The purchase orders contained terms that were additional to or different from those in Seller's proposals. However, those additional or different terms did not conflict with the above-quoted provision in Seller's offer that limited Seller's liabilities.

Seller fabricated the two pieces of equipment and delivered them to Buyer. The equipment did not perform as required. Buyer returned the equipment and sued Seller for return of its deposit, incidental damages, consequential damages, and lost profits.

Seller moved for judgment in its favor based on paragraph 11, arguing that Buyer sought damages that were precluded by the contract and, further, that Buyer's only remedy was repair or replacement of the equipment or a refund of the purchase price. The trial court agreed and granted judgment in favor of Seller.

Buyer appealed. Buyer argued that Seller's proposal contained terms that were additional to or different from those of Buyer's purchase order and, therefore, did not form part of the contract.

The common law of contract formation generally requires a party's acceptance to be the "mirror image" of the offer. Under the common law, when a party responds to an offer by stating terms different from those in the offer, the response is considered a counteroffer. If the person who receives the counteroffer performs, it may be inferred that he accepted the counteroffer. So, under the common law, where there is performance after a counteroffer, it is pursuant to the terms of the counteroffer and not pursuant to the offer or a blend of the offer and counteroffer.

The law is different in the context of the sale of goods. The Uniform Commercial Code governs such transactions and does not use the "mirror image" rule. Instead, the UCC strives to accomplish formation. "A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on asset to the additional or different terms." And where the offeror and offeree are merchants (a term defined in the UCC), the additional or different terms in the offeree's acceptance also become part of the contract, unless (a) the offer expressly limited acceptance to the terms of the offer, (b) the additional or different terms materially alter the offer, or (c) within a reasonable time after receiving the acceptance containing the additional or different terms the offeror gives notice of objection to them.

The appellate court found that the transaction concerned goods and, therefore, that the UCC applied. Based on the UCC rules, the appellate court affirmed the ruling of the trial court, finding that Buyer's purchase orders constituted acceptance of Seller's offer. Thus, the appellate court rejected Buyer's argument that the terms of its purchase orders, which were not the mirror image of the offer, constituted a rejection of Seller's offer. If anything, the additional or different terms became part of the agreement. However, since the nothing in Buyer's purchase order conflicted with paragraph 11 of Seller's proposal, paragraph 11 remained a part of the contract and worked to bar Buyer's claim.

Due to the UCC and paragraph 11 of its form offer, Seller accomplished at least two goals that many businesses might find important to staying in business and being profitable. First, Seller effectively limited its liability. Specifically, Seller limited its liability to the repair or replacement of defective parts or, at its option, refunding the purchase price. Seller did not have exposure to Buyer's claim for the variety of damages that Buyer claimed, including the claimed lost profits. Second, Seller ended Buyer's lawsuit with a motion, before a more costly trial. Seller must have been proud of his contract provision.

In the construction industry, both material suppliers and those purchasing from them should be familiar with the rules governing the sale of goods established by the Uniform Commercial Code. That familiarity can go a long way to limiting liability, which translates into greater profitability.